That pot of gold at the end of the rainbow just got a lot less valuable.
Gold and silver prices have been in meltdown mode in recent weeks. Gold spent much of 2014 trading around $1,250 an ounce. Now it trades below $1,145 — its lowest level in over four years.
Why are gold and silver going out of fashion with investors? It’s simple: The “end-of-the-world trade” is no longer popular.
Investors buy gold when they’re scared. Right now the U.S. economy continues to chug along, Ebola fears have faded, tensions with Russia have eased and Western countries are containing ISIS.
All of that has been great news for U.S. stocks, which have zoomed back to record highs, and for the U.S. dollar, which is enjoying one of its best periods in years.
But a stronger greenback hurts gold and silver. These metals are priced in dollars, so a sharp decline in currencies like the euro and yen makes gold more expensive for global investors.
“The main driver has been the strength of the U.S. dollar,” said George Gero, precious metals strategist at RBC Capital Markets.
No Fed help for metals: Gold is down about 17% since it peaked in mid-March at $1,380 an ounce. But it’s been on an especially steep decline lately with prices sinking nearly 10% since Oct. 21.
Silver has had an even worse few months, plummeting 30% from its mid-July peak of around $21.44 an ounce.
In addition to investors getting less fearful, gold and silver have also been hurt by the Federal Reserve’s decision to pull back on its stimulus measures. Some investors were fearful that the U.S. central bank’s emergency policies would create hyperinflation. They bought gold as a hedge against inflation.
But that argument has lost some clout. Inflation remains very low, and the Fed has clearly indicated it intends to raise interest rates in 2015, which should also help keep inflation under control.
“The Bank of Japan and European Central Bank are only in the first two innings” of monetary stimulus, while the “Fed is pulling back,” said Sameer Samana, senior international strategist at Wells Fargo Advisors.
Gold: next stop $1,000? The tough stretch for gold, silver and other metals is hurting the stock price of miners. Just look at Newmont Mining and Barrick Gold, which are staring at 20% and 35% plunges this year, respectively.
Gero thinks investors might hop back into gold if it falls to around $1,100, while silver could attract buyers at about $15.
“With so much negativity overhanging in the gold price, I think we may start to bottom out a little bit,” he said.
That bottoming process could be boosted by the fact that demand for precious metals tends to pick up in December around the holidays. A Christmas ring or bracelet, perhaps.
Others aren’t so optimistic about metals.
“We do believe there is more room for further declines in both gold and silver,” said Mu Li, senior precious metals analyst at CPM Group.
She sees a “strong likelihood” that gold falls to $1,100 and possibly even $1,000. Keep in mind gold was sitting at nearly $1,800 just two years ago.
Samana isn’t planning to buy even if gold and silver do fall further.
“If you get a bounce in gold and silver, it would in our opinion be another great time to reduce exposure,” Samana said.
And do what with that money? “Buy equities,” he said.
